RPT-Poland's energy security strategy comes at high cost

By Oleg Vukmanovic and Agnieszka Barteczko

LONDON/WARSAW, Sept 9 (Reuters) - Poland's deal to import
liquefied natural gas (LNG) from Qatar could saddle eastern
Europe's biggest economy with some of the highest prices in the
world, a steep bill for a country seeking to wean itself off
Russian supplies and restart growth.

Based on current prices, the Qatari imports scheduled to
start in 2015 would cost at least a third more than what Russia
charges for deliveries to Europe, also creating a potential wild
card for a government expected to face new elections.

"Poland will have to live with it and get prepared for
minimizing losses," said Andrzej Szczesniak, an independent oil
and gas analyst. "It could resell the gas it receives from Qatar
on the market, but probably at a lower price."

Szczesniak estimated the Qatari price to be 40-50 percent
higher than that charged by Russian gas producer Gazprom
. A senior energy executive in Poland suggested the
premium was even higher.

Poland and other central and southeastern European countries
receive the bulk of their gas from Russia and are eager to
reduce dependence on their former Soviet master.

The winter 2009 dispute between Russia and Ukraine that
shuttered a major pipeline serving the region underlined the
risk of relying on Russian deliveries and pushed governments to
redouble efforts to find new suppliers.

"The geopolitical, non-economic reason is to release Poland
from dependency on a single supplier that is unfriendly," said
Aviezer Tucker, who specialises in central and eastern European
issues at the Energy Institute of the University of Texas.

"Unlike with piped natural gas, there is a global market for
LNG."

One new proposal is a pipeline system to transport gas from
Poland's new LNG terminal on the Baltic Sea and from another
planned facility on Croatia's northern Adriatic island of Krk.

The 2.1 billion zloty ($645 million) terminal under
construction in the Baltic port of Swinoujscie is expected to be
finished in the second half of 2014 with Qatari deliveries
beginning in 2015.

Under an agreement signed in 2009, Poland's gas monopoly
PGNiG will buy 1 million tonnes of LNG annually for 20
years at a price closely correlated to crude oil.

The deal calls on Poland to pay a rate of 16 percent or
above of crude oil prices, plus a fixed component of around 50
U.S. cents per million British thermal units (mmBtu), trade
sources familiar with the agreement said.

At today's prices, that equates to around $20.50/mmBtu,
compared with the cost of Russian long-term supplies to Europe
of $13.50/mmBtu, data from Thomson Reuters Point Carbon shows.

That means Poland could pay an extra $325 million annually
for the Qatari supplies, which will cover about a tenth of all
demand in the country of some 39 million people.

Spot LNG on the global market fetches around $15.25/mmBtu,
while current European pipeline gas prices trade at $10/mmBtu.

So far, the only cargoes currently secured for the terminal
are Qatari term volumes, which are well above other long-term
LNG contracts.

Since high LNG prices will be passed on to final consumers,
this could turn into a sticky political issue for the
centre-right government in 2015, when Poland is scheduled to
hold parliamentary elections.

"Aside from this deal, which may be considered symbolic
given the relatively low volumes on offer, Poland could
eventually be an outlet for U.S. LNG once exports start," a
separate industry source said.

TAKE OR PAY

The gas for the new terminal will likely come from the third
production plant, or train, at Qatargas, the world's biggest LNG
exporter.

It is expected that shale gas and regasified LNG will be
more expensive than pipeline imports from Russia, which rose in
2010 to 10.2 billion cubic metres per year, until 2037.

Another issue for Poland is the "take-or-pay contract"
requiring PGNiG to begin paying for LNG whether the terminal is
ready or not. The Polish treasury minister said earlier in
September that Poland is unlikely to pay for supplies if the LNG
terminal is delayed.

Sources also told Reuters that PGNiG has set up a committee
to look into renegotiating its Qatari deal, while a former
Polish treasury minister has hinted that taking a second look at
the agreement is on the table.

"I know there were such plans," an industry source in Poland
familiar with the case said. PGNiG and the treasury ministry
declined to comment, saying the contract was confidential.

Even so, new talks with Qatar have little chance of success
as the LNG supplier would be reluctant to give a discount due to
firm prices worldwide, market sources said.

"Such contracts can usually be renegotiated every third year
after being implemented but I do not think the Qatari deal could
be renegotiated before it starts, especially as there will be no
place to unload the gas," analyst Szczesniak said.

Instead, Poland may have to offer substantial assets - such
as power plants or real estate - to convince the Qataris to
lower the price, the industry source said.